2010 In the Rear View Mirror

2010For me, at this time of year everything is in the rearview mirror.  It always seems like such a rush to get my year-end behind me.  It just so happens it lands on December 31st.  The new calendar year is always when I shift gears into our new crop world.  We’ll see what 2011 brings.

Canadian agriculture in 2010 had a very up-and-down year.  For instance in Western Canada it was so wet in the spring that we planted the least crops in 39 years.  Little did we know at the time that the tough planting conditions in western Canada would lead to the run-up in the world wheat market.  Western farmers did not really recover from that.  Sure there were regional variations, but the wet spring in Western Canada was the story of the year pre-Canada Day.

Firmly ensconced in southwestern Ontario it was the classic case of wondering what was going on in Western Canada at the time.  However, I was a sent picture after picture of flooded fields, intersections, bridges taken out and very poor crops.  I had one producer from the Interlake region of Manitoba tell me his cropping season was over, almost before he started.  In fact he told me that five out of the last six years had been terribly bad.  I hope for his sake as well as others in Western Canada 2011 smiles at them.  Too much bad weather destroyed a lot of agricultural production in Western Canada in 2010.

Other than the weather story, the big news in Canadian agriculture in 2010 had to do with our grain markets and the continuation of record low Canadian interest rates.  The story within the story of the grain market had much to do with the goings-on at the USDA.  The USDA’s penchant for frenetic crop reporting made the grain market even more jittery than usual.  What made it worse in 2010 was the USDA seemed to be contradicting itself too many times.  USDA reports acted more like flashpoints, sending the market in wild gyrations.  At the end of 2010 many of us are waiting for the shoe to drop.

It all started with the January 12, 2010 USDA report.  You might remember at the time the 2009 US corn crop was shrinking.  Many analysts were expecting the crop to get even smaller.  So what did USDA do?  On January 12th they said there was going to be more corn than expected, shocking the market.  Grains plummeted and many people were caught on the wrong side of the market.

That is normal in commodity agriculture.  It happens all the time.  Needless to say it wasn’t quite the same in 2010.  In the March 30 USDA prospective planting report there wasn’t as many corn acres projected as expected.  In the June 30th planted acreage report the acres weren’t there.  In fact even the old crop corn stocks weren’t there.  It was like shazam, where did the corn go?  That combined with the short wheat crop in Russia started market prices going up.  It was accentuated by another USDA report in October, which said supply was not there.  Simply put, in 2010 the USDA redefined the word fickle.  Trust between the USDA and many American farmers was broken in 2010.  As we wait for the January 12, 2011 USDA report there is surely a lot of angst on what they will say next.  Canadian agriculture will be watching in 2011.

The other big story for Canadian agriculture in 2010 is flying low under the radar.  The continuation of extremely low interest rates has helped expand many Canadian farms.  In fact debt levels have grown because debt is so much easier to finance.  In fact land values have also been inflated by vast amounts of capital being taken out of the equities market and put into farmland in places like Saskatchewan and southwestern Ontario.  Low interest rates have been the lubrication for this.  It doesn’t get much news and it is generally perceived as a positive.  Needless to say, if we ever went back to double-digit interest rates everybody in Canadian agriculture would be scrambling to pay their debts.

Looking into 2011, it’s hard not to be bullish.  Everybody seems to be pointing to good times ahead.  I’m sure I have done my share of pointing but I offer you a caveat.  A year ago at this time we could see none of the major market factors, which ultimately influenced our agricultural economy in 2010.  They suddenly, on some unexpected Tuesday sprang to life, impacting our markets in surprise formation.  So I see the same thing in 2011.  Sure it looks bullish now, but what’s around that corner?  The great unknown never looked so vast.